How to go from $25/hour to $75/hour in 2 weeks

I’ve been helping a friend earn more money, and tonight was a breakthrough.

Here’s what happened…

My friend has a full-time job, but recently she’s been doing some freelance project management on the side for a small consulting firm, where she earns $25/hour.

After a while, she realized that $25/hour doesn’t really add up to much, and she was getting frustrated with the owner’s poor management skills. (You know how it goes: Very disorganized, non-responsive, took days to get back to emails…)

But I encouraged her to stick around for 2 things: to get referrals and raise her rates. The client knows my friend has been doing a superb job, so she was happy to refer her to a colleague at a different company.

At this point, my friend talked to the new person — a guy who runs a different company — but was skeptical of getting too involved. “I don’t really want to do this for $25 an hour,” she told me. “And I realize that it’s not just the time I’m working…I have to deal with managing clients, who are just really unresponsive.”

I suggested a few things she could do. She went into her first meeting using my Ask Without Selling technique. Then she then went back to him with a proposal.

“You wouldn’t believe it,” she told me on the phone. “I quoted him $50/hour and he didn’t even blink. Shit! I should have asked for more!”

I love it.

There are several non-obvious things going on here:

When you get referred to someone, you don’t drop your rate — you raise it. Many people mistakenly drop their rate, thinking that the referrer will divulge the rate they currently pay (they won’t), or that you should discount for your client’s friend (you shouldn’t). In fact, you should raise your rate since your client has removed all risk by vouching for you.

There are many other options besides quitting. If someone’s paying you — even if it’s under your desired wage — you don’t just quit. Quitting is one of the worst things you can do. There are many other clever ways to help your client and yourself — like asking for referrals.

By charging more, you get a higher-quality client: First, they can afford your higher rate, which means they’re more financially successful and therefore probably have better business skills. Second, since they’re paying you more, they don’t want to waste your time.

So the guy didn’t flinch at $50. How does my friend get to $75/hour?

She needs to package her services properly

I suggested she offer her baseline services at $50/hour, as she discussed, but also offer 2 higher tiers: For example, she could include marketing services for $60/hour, and project-manage the entire project for $75/hour. I just made those options up — she knows her business best — but the important point is to offer increasingly valuable options.

Do you know why it’s critical to offer more than one package? There are 2 reasons, actually:

He might actually pick a higher tier, which would be money in your pocket — and a new hourly rate

By offering 3 options, she’s shifted the prospect’s decision from “Should I buy her services or not?” to “Should I buy $50, $60, or $75/hour?”

Imagine how implementing even one of these techniques could change your earning power forever. If and when my friend closes the deal, even if it’s for $50/hour, she’ll have doubled her hourly rate. That lasts forever — and it only goes up.

You can use these same techniques to earn more money, whether you have an idea yet or not. And the techniques I covered today only scratch the surface.

49 Comments

Also, charging more can actually be a marketing ploy; especially if the original base price is below the general market rate. Even as an accountant I’ve been told straight up that I didn’t get a job because I had underbid and that they were afraid that I might start haggling later on to boost the price or charge extra for additional services as a way to get around my original low price. A higher price means that you’re confident in your abilities and that you see yourself as a professional and an expert.

This is a great story. I charge by the project, not by the hour, and have discovered that at most levels, the more you charge, the better you’re treated. But at the most stratospheric levels of pay, clients sometimes revert to treating you terribly—they figure they’ve paid for the privilege.

Excellent advice and I think this part is a huge, key insight:
“By offering 3 options, she’s shifted the prospect’s decision from “Should I buy her services or not?” to “Should I buy $50, $60, or $75/hour?” ”

I’ve never thought about it that way before, but the idea of changing the framework of their thinking is very interesting. I do have issues with this though:
“Many people mistakenly drop their rate, thinking that the referrer will divulge the rate they currently pay (they won’t)”

When I refer someone to a service I’m using, it’s often because I think I’m getting great value (not necessarily a cheap price), so the price paid very frequently comes up in conversation. I may not divulge it voluntarily, but if my friend asks me (which is quite common), I tell them most of the time. Maybe I’m a special case, but I also ask people how much they pay for services that they refer me to at times. So what are you supposed to do if you quote your $50 rate and the new client balks that they know you’re charging others $25?

1. Then they are not the right client for you
2. For a business owner, the value of having someone else vouch for a consultant/vendor is often worth $25/hour, easily. Personally, if someone vouched for a specific key person in my business, it’d be worth at LEAST that — and sometimes $100+/hour
3. You need to convey value, not price, and there are techniques to manage the referral process
4. This is a little more complicated, but I cover several techniques for offering introductory prices in my course. If you employ them, you can deftly sidestep this issue and offer true value for your old and new clients

As a long-time independent contractor, I’d warn against offering different prices per hour for different services. It suggests that an hour of your brain is worth less if you’re “just” doing X instead of Y. Also, most projects require a mix of skills, so this approach becomes unwieldy.

It’s simpler to find a rate and stick to it, and it’s better yet to charge by the project because then you’re rewarded for being efficient and it becomes a lot easier to charge by value (charge more for work that will net the client more).

If you want to offer differently priced packages, add to or take away from the amount of work included in the project. For example, if you quoted $3k for the project and the prospect said their budget allowed only $2500k, you can offer to take something out, like, “I’d be happy to do the work, but for that fee we’d only be able to do one round of revisions.”

If you do consulting-type work, you can also offer packages based on an hourly fee, with the hourly rate going down for packages of more hours. I offer packages of 2, 4, and 8 hours for brainstorming with clients. The 2-hour package is based on a higher hourly fee than the 8-hour because of the hassle of ramping up new clients.

If you do charge by the hour, $50/hr is basically minimum wage for skilled work from a contractor. That’s why the guy didn’t blink. If you charge much less, you’ll just get cheapo clients who treat you badly, and you’ll give the impression that your work or business skills aren’t great.

Cat, this is a very good point. You are absolutely right — package deals would be optimal here — but there are some extenuating circumstances that made it impractical to list them here. So for simplicity’s sake, I just listed the hourly rates. But everyone reading should know the differences between the different bundles you can offer, whether hourly, project-based, commission-based, retainer, etc.

So one question Ramit, do you think that we should adapt the amount of money to each client? I’m asking because I was considering offering 3 different packages of services at different prices on my website with their price. I noticed that people usually don’t tell the price until after the client already showed some kind of interest. Can you explain why? or maybe refer to another article. I supposed you already wrote about that and I missed it

Ramit,
A slight tangent to this pricing discussion. I currently work full time but I’m thinking of trying out some of your ideas and picking up a bit of consulting business on the side. How do you suggest I deal with my current employer? I don’t want to lose my job but I’m a little hesitant about telling them “hey guys, I’m also going to do this other work…”

Have you dealt with situations like these before? What do you recommend?

Ramit,
I have to disagree. I have worked for over 15 years doing consulting and workshops on the side and in each case I first checked my employment contract and then explained it to my employer. Across the board they said as long as it was not a competitor, they were fine with it. By the way, I took vacation days to do this. It’s a nice way to earn vacation money.

Charging more after referals definately makes sense. I would think of the first few clients in freelancing as internships in the corporate world. You would charge lower because you have very little reference and no freelance”experience. After you have worked for low wages of interns (or no wages) you came out with references and the ability to ask for more because of your experience. Of course, none of this matters if you didn’t do your job well. Ramit, what would you say about pre-screening clients, how do yo utell if hte person is going to be a bad reference regardless of what you do? Do you think, some people are impossible to please?

This is something I’ve always heard of to do… but never really tried. (so this post is kinda a kick in the rear for me)

In fact I still haven’t gotten into the freelancing bit, though as an engineer I’m sure there’s a lot I can do.

But anyways, this is a perfect example of what most REALLY successful people say- don’t wallow in the mud. If you always try to underbid the other guys, you’re seen as lower quality AND you don’t get what you’re worth.

Instead of being the bottom of the food chain, why not be the top? Instead of selling a low quality, cheap product or service why not sell the best and get a premium rate for it?

Nice post Ramit! Oh and its cool knowing that your friend only needs to work 40 hours to make that extra $1K- that’s nothing!

Justin, hearing you describe yourself drives me crazy since there are only some small, WELL-UNDERSTOOD barriers holding you back. Come join me. If I don’t kick your ass into earning back the cost of the course (and far more), I’ll personally refund 100% of your money.

Awesome post Ramit, I’ve been following along with the preview course and love what I’m learning. I have a question though – have any recent college grads done well with your course? I just graduated from Cornell with a degree in business and can think of tons of way I can put this material to use, but I’m not so confident that I have enough experience to offer real value to people. I’m convinced this would go far beyond paying for itself over my career, but I’m not so sure the timing is right for someone in my position.

Shane, I have many students just like you. There’s a balance between becoming more expert in your field, and simply starting to solve people’s needs. One of the big mistakes people make is thinking they need to spend years becoming more expert — when, in reality, they need to learn how to solve clients’ needs.

Compare:

1. Person who’s spent 15 years becoming an expert in something but has no idea about customer research, client management, how to deliver amazing results on time and on budget
2. Person who has basic skills, but deeply understands customer research, how to WOW the client, and can learn rapidly.

Either person can make money. But Person #2 can make significantly more than you think — in many cases, more than Person #1. Counterintuitive but true.

You can’t charge tiered pricing for the same service *on an hourly scale*. Maybe I’m willing to pay you $50/hour for “management services”. Maybe I’m even willing to pay you $60 for “marketing services” (This assumes I think marketing is in some way more difficult or riskier than management, and so garner’s higher compensation but the actual tasks are unimportant).

You can not charge me $60/hour for “marketing + management”. An hour is a fixed time period, and an hour of “marketing + management” is actually something like 45 minutes of management and 15 minutes of marketing. That works out to a total of $52.50 for that hour of work, because most of it was billed at the lower pay rate. If you want to charge me $60/hour for 75% management, and 25% marketing, then you’re going to have to raise your rate for straight “marketing” to $90/hour.

It’s also the case that the job I initially wanted done was a “management” job. Presumably this job takes a fixed amount of time to complete. Say 10 hours. If I’m paying you for 10 hours of management, that will cost me $500. If I pay you for 10 hours of “management + marketing” at a 75/25% split, my job isn’t finished — you’ve only actually spent 7.5 hours on management, the rest was spent working on add-on marketing services. To finish my job, you have to spend 13.33 hours on “marketing + management” (given the 75/25% split) — 10 on management, and 3.33 on marketing. It will cost me $800 at $60/hour to finish this expanded 13.33 hour job.

It would be a lot more straightforward of your friend to offer 10 hours of management at $50/hour, and as the up-sell, offer to do an extra 3 hours of marketing work at $90/hour for $270. If she can do that though, she might want to get out of the “management” business and just focus on marketing.

The only way she can sell a “higher tier” service for the full ten hours is if it completely replaces the less-expensive service, i.e.:
Labor to build your part from steel: $50/hour
Labor to build your part from aluminum: $60/hour
Labor to build your part from carbon fiber: $75/hour

Someone may opt for the more expensive part (with, presumably, a more difficult and therefore more expensive tooling process) as a complete replacement for the lower quality part. This doesn’t work if the services are not completely interchangeable: No one is going to pay you $75 to advertise a website in lieu of paying you $50/hour to create the website in the first place. Maybe they’ll buy some advertising after the site is done, but they’re not going to bother advertising a site that doesn’t yet exist.

Tyler, see my comment above this. You are right that it’s very tricky to offer packages of different hourly services, but above I explain why I left out the other packaged services. I’m being intentionally generic since getting into the details would just unnecessarily complicate things here.

The offering different rates for different services is BRILLIANT! (As I’m sure you know) humans make value decisions based off of relative criteria rather than absolute criteria, so by putting a more expensive item on the “menu”, you can drive business to the less-expensive options that you prefer!

This article is a great reminder that prices are not fixed. One of my greatest rules of thumb in analyzing the strength of a business is whether the answer to this question is a yes or no: If you raised rates today, would you lose customers tomorrow? If no, then you have a strong business. If yes, you need to figure out why they would leave, and correct it.

I’ve seen so many people have ‘a good idea’ and then failed to research it properly before implementing – which means they get minimal business in and then give up. The content of your course is gold dust for this element of it alone.

Earn$1k sounds like the perfect course for me but I can’t justify financing it right now – vicious circle, I know …..

As for adding tiers of fees and services – I’ve seen a lot of businesses do this – from mobile phone and broadband providers, to hotels and gyms. It’s the perfect way to hook a client in and then encourage them to purchase more. I guess your friend needs to ensure she can deliver, given the higher priced service will mean she spends more time with one client.

Many of the comments are about the how of increasing your prices, but there is an important underlying why. Psychologically asking for the higher price is difficult for most people. If we attempt to increase our price from $50/hr to $75/hr, most people get hesitant and the client feels this hesitation. If the client feels this hesitation and says “No”, we automatically assume that you’re not worth that price.

Using a tier method is a safe way to present a higher price and to prepare YOU for the price increase. Notice I didn’t say the customer because we are usually the one that need to be convinced that our service is worth it. Price increases bring up a host of self-esteem/ self-worth issues.

When I present price, I will say our regular tuition is $179, but we’re offering a discount for the fall so if you sign up today it will be $159. After you say this 20 times, you convince yourself the price is $179 then you can start presenting $199 with a discount of $179. Notice how you are constantly presenting the price increase ~ psychology warming you up to the increase.

These are monthly tuition amounts but the same method can be applied to the $50/ $60/ $70 upgrade pricing. Just remember the goal is not to sell an upgraded service but to warm you up to the idea of increasing the $50 base price up to $60.

Thanks Ramit! I wish I could take the credit for these ideas but they are the culmination of lots of business coaching ($5000 to 10,000/yr worth), applied reading and hard learned experience. Your posts touch me because I remember fighting through many of the barriers that you write about. I just hope that my comments help others make the same breakthroughs.

I love the idea of crafting your offer so that the client shifts the question from “Should I buy?” to “What package/rate should I pay for?”. Psychologically I can see this being effective because it gets the client focusing on value and not price. They can ask themselves WHAT problems they want you to solve for them, and what they should pay for these problems to be solved, rather than ask if you are the right person to solve their problems at that price point.

Ramit, So if I don’t mention it to my boss, how do you recommend finding time to work on side projects like these? I can take days off but then it costs me vacation time. I can try to work early in the morning or late in the evening but most consulting clients want regular business hours. With the exception of a few lunch time meetings, it seems like it would be difficult to maintain a full time job and do consulting gigs on the side.

I mean, if a staff told me he could get up to 75/hr elsewhere with the additional package but doesn’t mind charging me 50/hr today for basics, it just doesn’t make sense because you cant be doing two things at once. Time spent working for 50/hr meant less time spent earning 75/hr. The fact that your willing to go lower if at all, might send the message ‘I can work for you, but if you pay me for basic services, i’ll just be less efficient within the time I work for you’

Ramit,
Do you have any ideas/advice for a young healthcare professional looking to increase my income? I currently only work 24 hours per week and make full time money and full time benefits. I definitely have lots of free time but it seems like a lot of freelancing, consulting, earning more, etc is definitely more geared to other industries.

Yes, have you read the MANY posts on my site on earning more? Or joined the preview course to get more ideas? Your niche has literally dozens of potential options to earn more. In fact, you could probably be earning $3k/month within 3 months easily.

Great post Ramit. I just take a little exception with your comment “Quitting is one of the worst things you can do.” Sometimes, of course, this is true. Other times, someone would be much better off quitting.

I’m struggling through this with my side project. Making the decision to quit (even though I haven’t actually quit yet) has set me free.

I am happy for your friend, that what usually happens when you start believing in yourself, others do too. Knowing what is your time worth is so important! Many people undervalue their talent and work they do.

How is your move to NY? Liking it? So different from bay area I bet! I have been to both places and they are so different, almost feels like different country sometimes.

I just entered the world of freelance work so this is a great post to motivate my. The second non-obvious really stood out to me – I just have to hang in there. What a great idea on the tiered option, too! Thanks for posting this!

[…] Teach You To Be Rich: Worried about what clients would think if you raised your rate $10 an hour? How about tripling your rate with a smile in return? It’s a no-brainer technique too.Freelance Folder: I know I fall out of practice of searching […]

Thanks for this post. It’s amazing how much more respect you get when you charge more money. You may lose a few jobs by naming a price too high, but generally people expect consultants to charge a lot due to lack of benefits and all the self marketing costs. I went from $50/hr to $100/hr (though usually charge clients between $60 and $80/hr.) It feels good to through the $100/hr rate out because #1 I think that’s how much I’m worth and #2 I feel comfortable negotiating down to a rate that both myself and my client can be happy with. They feel like they’re getting services worth $100/hr for less and I am still happy with the agreed on rate. I’ve tried it the other way… starting low and trying to raise the rate as the project got more complicated, and found that doesn’t work because the client always thinks I’m worth less and doesn’t want to pay more.

Thanks for this post – it was certainly inspiring to read. There is one aspect of this case study that seems just a bit too easy. In my experience (albeit limited), raising rates (from $35/hr CAD to higher) was a total failure. At that point, I didn’t have the ability to walk away from the contract unfortunately.

Perhaps another post could explore how to deal with clients that fight back against an increase in rates?

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About Ramit Sethi

Ramit Sethi is the author of the New York Times bestseller, I Will Teach You To Be Rich. He writes about psychology, entrepreneurship, careers and personal finance for over 750,000 monthly readers on his website.